This document summarizes a seminar on Cuba's economic prospects. It outlines Cuba's current difficult economic situation, including low wages, deindustrialization, and reliance on imports. It describes reforms under Raul Castro to liberalize self-employment and reduce the state sector. While the reforms are a step in the right direction, implementation has been slow and uncertainties remain. Cuba's economic future will depend on factors like foreign investment, Venezuela's support, and engagement with countries like China and Brazil.

1. Seminar oonn PPrroossppeeccttss ffoorr
CCuubbaa’’ss EEccoonnoommyy
BBiillddnneerr CCeenntteerr,, CCUUNNYY,, MMaayy 2211,, 22001122
Cuba’s Economic Problems and Prospects in a Changing
Geo-Economic Environment
Archibald R. M. Ritter, Carleton University, Ottawa, Canada

2. OObbjjeeccttiivveess::
– To review Cuba’s current economic situation;
– To outline and evaluate the policy approach of the
Government of Raul Castro;
– To explore implications of the changing geo-political
setting for Cuba’s economy;
– To outline a number of possible future scenarios
Main Argument:
– Current economic situation is difficult;
– Strategic economic re-orientation:
right direction; modest; slow implementation;
– Prospects are positive, with major downside risks
– Major economic uncertainties and risks in the near
future

3. Outline:
II.. CCuubbaa’’ss CCuurrrreenntt EEccoonnoommiicc SSiittuuaattiioonn:
II. The Reform Approach so far:
III. Economic Performance, 2011-2012
IV. Implications of the Changing Geo-
Political Context
V. Some Scenarios for Cuba’s
Economic Future

4. II.. CCoonntteexxtt ffoorr tthhee RReeffoorrmmss ooff 22001100--1122
1. General economic performance
during the “Special Period”, 1990-
2011:
–Human development has been positive;
–Some success: growth and
recuperation;
–Some “Islands of Prosperity” (e.g.
Tourism sector, Old Havana, mixed
corporations

5. II.. CCoonntteexxtt ffoorr tthhee RReeffoorrmmss ooff 22001100--1122
But:
–Real Income per person has not risen
in pace with economic growth;
–Production of Goods – as opposed to
services – has not improved;
–A range of problems continues

6. 140
120
100
80
60
40
20
0
1989
Chart 1 GDP per capita, 1989-2010
191
193
Base Year: 1989 = 100.
195
197
19
201
203
New GDP Measure
Adopted, 2004
205
207
209
SSoouurrccee:: OONNEE,, AAEECC vvaarriioouuss iissssuueess aanndd UUNN EECCLLAACC,, PPrreelliimmiinnaarryy OOvveerrvviieeww,, vvaarriioouuss iissssuueess

7. But: Cuba’s GDP statistics are dubious:
– The Oficina Nacional de Estadísticas (ONE) adopted a
new approach to measuring GDP (ONE 2006, Table 2.1.2.30).
– Increased the value of “government consumption” by
76.6 percent—for health, mainly – thereby raising Cuba’s
GDP per capita and increasing its growth rate;
Although the Cuban economy surpassed the
levels of 1990, the real value of wages in
Cuba remained at around 40 percent of
the 1989 level (see Chart 2).
Actual economic performance: weak

8. Chart 2 Cuba: Real Inflation-Adjusted Wages, 1989-2009
(Pesos, Moneda Nacional
Vidal Alejandro, Pavel, “Politica Monetaria y Doble Moneda”, in Omar Everleny Perez et.
al., Miradas a la Economia Cubana, La Habana: Editorial Caminos, 2009

9. Average formal economy wage is
around 25-30% % of the 1989 level;
Minimal recuperation since 1993
Many have other income sources
– remittances;
– self-employment
– home produced G&S;
– goods in kind from the state;
– underground economy;
– pilferage;
Those without other income sources:
deep poverty

10. Chart 4. Cuban Exports and Imports of Foodstuffs, 1989-2010
(excluding Tobacco and Alcoholic Beverages) (Millions CUP)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Food Exports
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Food Exports Food Imports
Source: NU CEPAL, 2000 Tables A.36 and A.37, and ONE, AEC, Various Years.
FFoooodd IImmppoorrttss

11. Source: NU CEPAL, 2000 Cuadro A.86; ONE, 2012 Table 11.3

12. Sugar sector collapse: major
economic catastrophe
– Regional and local development impacts;
– Cluster of input-providing and output
processing activities collapse;
– 32.1% increase in idle farm land (to 1.2 million
hectares);
– Reduced foreign exchange earnings
+/- $3.5 billion in 2010;
– By-product electricity generation reduced;
– Increased unemployment;
– Ethanol production foregone

13. Source: ONE AEC, 2004, Table 11.1 and 2IX.1, and subsequent issues
Note: Data for 1990-1997 are not available

14. Causes of De-Industrialization:
The policy environment (Dual monetary
and exchange rate systems);
A grossly overvalued exchange rate;
The 1990-93 melt-down;
Technological inheritance from the USSR;
Unfair competition from China with its
grossly undervalued exchange rate
Neglect of maintenance and re-investment

15. Chart 6 Structure of Production in the Cuban
Economy, 2010; Percentage of Total GDP
Source: ONE, 2011 Table 5.5
Manufacturing
(excl. Sugar) 13.4
Construction, 5
Electricity, Gas,
Water, 1.6
Transportation 8.8
Health &
Education, 24.9
Other Services,
40.2
Sugar, 0.7
Agriculture, Fishing and Mining 4.3

16. Source: ONE, AEC, 2010, Table 8.11, 8.2 and 5.11

17. Chart 8 Cuba’s Merchandise Exports by
Destination, 2010 (Total: $4,597.7 million)
ONE, 2011, Chart 8.5

18. Chart 8 Cuba’s Merchandise Imports by
Source, 2010 (Total: $10,646.8 million)
ONE, 2011, Chart 8.5

19. Insufficient Investment
In 2010 (ECLAC’s Preliminary Overview, 2011)
– Cuban Investment 8.2% of GDP
– Latin America 21.9% of GDP;
Insufficient maintenance
– Run-down capital stock:
housing infrastructure, etc.

20. Chart 9 Unemployment and Underemployment in Cuba, 1988-2010
Source: Carmelo Mesa-Lago:Convirtiendo el Desempleo Oculto en Visible en Cuba” Espacio Laical, Havana Cuba. And Comisión
Económica para América Latina y el Caribe (CEPAL). 1997, 2000. La Economía Cubana: Reformas Estructurales y
Desempeño en los Noventa (México DF: Fondo de Cultura Económica, 1a y 2a ediciones).

21. Causes of Economic Problems
Not Weak Human Development; Not laziness;
Not weak entrepreneurship
Instead: problems are due to
– A Central Policy Mess-Up: The Monetary and Exchange
Rate System
– Misguided policies;
– Institutional deformations:
excessive expansion of state sector;
– Insufficient role for market mechanism;
– Innumerable bureaucratic controls in labor, product,
financial and capital markets;
Induce people to undertake unproductive actions
Thence the underground economy, pilferage, black markets

22. II. Raul Castro’s Approach to Reform
“We confront unpleasant
realities, but we are not
closing our eyes to them.
We are convinced that we
must break dogmas and we
affirm with firmness and
confidence the
implementation, already in
process, of ‘our economic
model’”.
Raul Castro

23. ““DDrraafftt GGuuiiddee ffoorr
EEccoonnoommiicc aanndd
SSoocciiaall PPoolliiccyy”” ooff
OOccttoobbeerr 22001100

24. Ambitious IInntteennttiioonnss ffoorr Economic and Social Policy
(291 guidelines, goals, or recommendations)
I Economic Management Model (38)
II Macroeconomic Policies (25)
III External Economic Policies (44)
IV Investment Policy (13)
V Science, Technology and Innovation Policy (7)
VI Social Policy (36)
VII Agro-industrial Policy (31)
VIII Industrial and Energy Policy (37)
IX Tourism Policy (13)
X Transport Policy (18)
XI Construction, Housing, and Water Policy (14)
XII Commercial Policy (9)

25. Essential Character:
– Purely economic, no political elements
– Not a “Plan”; Maybe a “Pre-strategy”
– Ambitious and comprehensive
– A statement of aspirations; a “Wish-list”
No priorities indicated
No sequencing of policies or investments
No coordination
Does it suggest a “Viet Namese Model” or a
“Chinese Model”? Only partially

26. Economic Reforms so far
Policy Changes towards Micro-Enterprise
a) Range of activities: a small increase
(Still too limited)
a) Regulatory framework: some relaxation
b) Tax regime: minor change
(continuing rigor)
a) Licensing: significant liberalization
b) Media and political environment “de-stigmatized”
totally !

27. AAddddiittiioonnaall CChhaannggeess::
f) Broadened eligibility for self employment:
non-retired or non-disabled eligible
g) Rental of facilities from citizens or the state
is easier
h) Sales to state entities is now possible;
i) Use of banking facilities and bank credit will
be possible;
j) Cooperative ventures are now encouraged
(taxis, beauticians)
Conclude: Some improvement, but further
reforms are needed

28. IIIIII.. RReessuullttss??
Expansion of Small Enterprise and job
creation has been too slow to absorb 500,000
by March 1, 2011, or 1.2 million by December
2012
• 171,000 new licenses by March 10, 2011
Proposed shock therapy re employment
was too brutal to be implemented:
Firing of workers decelerated.

29. Source: ONE: Anuario Estadistico de Cuba, various issues

30. Other Policy Initiatives: July 2006-May 2012
22000066
Permission for Cuban citizens to use tourist hotel facilities
Permission to acquire personal cellular phone contracts
Permission to rent cars previously reserved for foreigners
Relaxation of rules regarding purchase of computers, DVD
players, etc.
“Resolution on Regulations for Labor Discipline”
2007
Legalization of hard‐currency salary supplements to Cuban
employees of foreign joint ventures
2008
Decree-Law No. 259: ten-year leases of unused
state land to small farmers
Decree Law No. 260, Financial incentives to attract teachers back
to their profession

31. 2009
Replacement of Fidel Castro’s economic team and resignation of
the President of the Central Bank
Proposal to reduce subsidization of rationed products
Replacement of worker’s dining facilities with an income increase
2010
Relaxation of restrictions on private taxis
Experiment with cooperative beauty and barber shops
Markets for inputs for small farmers
Raising of retirement ages from 55 to 60 for women
and from 60 to 65 for men
Liberalization of sale of building materials to citizens
Legalization of 99-year leasing of land to foreign
tourist companies (August 13, 2010)
Announcement of Lay-offs of 500,000 state sector workers to be
incorporated into self-employment. (September 1)

32. 2011
Direct conversion of state properties to private activities
(preferably cooperatives)
Home Ownership: direct citizen-to-citizen sales at
market determined prices probable
Establishment of an open market for vehicles
An emphasis on cooperative-types of organization; details in
process
Modification of Educational System:
Reducing University enrolment ;
Reversing Fidel’s University in Every Municipality approach

33. Is the Reform Process Sustainable?
Yes
 The “Fidelista Model” is discredited
 Fidel is irrelevant and discredited;
 “Fidelistas” are also discredited
 By current realities,
 By the “Proyecto de Linamientos…”
 By Raul’s statements and speeches regarding the
need for a new economic approach
 By publicity re the need for a new approach
Fidelista Ministers have been replaced by
Raulistas;
Virtually no criticism from the left inside
or outside Cuba

34. – Raul’s military colleagues have moved into
management throughout the economy
Raul and the military: pragmatic since the 1990s
But management militarization is also problematic;
– Raul appears to have emerged from the shadow
of his elder brother;
Raul seems to want his own economic model;
Raul seems to want his own legacy

35. Could the Reform Process Accelerate??
Improbable as long as Raul is in Charge
– Cautious but deliberate;
– Original Revolutionary generation still in
command;
– Fear of Russian style melt-down;
– Fear of loss of political control & Party
monopoly;
– Political pressures from heightened
expectations ?

36. Under what conditions might the
reform process accelerate?
– If “Generational Change” occurs soon
and the gerontocrats leave the scene;
– If Venezuelan support stopped,
generating recession;
– If no off-shore petroleum is found;
– If other factors led to renewed
recession;
– If expectations were further heightened
but unrealized

37. Might the Reform Process Decelerate?
– Maybe, if Cuba becomes a “petro-power”
increasing foreign exchange
earnings dramatically
– Will Cuba experience the “Resource
Curse” phenomenon ??
– Maybe, as long as Chavez remains in
power
– Maybe, if other factors lead to renewed
economic prosperity

38. Probable economic performance in 2012
Foreign EExxcchhaannggee EEaarrnniinnggss:: MMooddeesstt
eexxppaannssiioonn..
• TToouurriissmm:: SStteeaaddiillyy iinnccrreeaassiinngg;;
• NNiicckkeell :: PPrriicceess ookkaayy;; vvoolluummeess
eexxppaannddiinngg
• TTrraaddiittiioonnaall eexxppoorrttss:: OOkkaayy
• PPhhaarrmmaacceeuuttiiccaallss :: PPrroommiissiinngg oouuttssiiddee VVeenneezzuueellaa
• OOtthheerr mmeerrcchhaannddiissee eexxppoorrttss :: GGeenneerraallllyy wweeaakk..
• VVeenneezzuueellaann ssuuppppoorrtt sseeeemmss aassssuurreedd ffoorr tthhee yyeeaarr

39. Investment Levels:
Domestic investment volumes weak
But micro-enterprise investments are increasing
and bear fruit fast;
Significant positive impacts on daily material life
for citizens
Foreign Investment modestly positive:
Mariel Port Development now;
Sherritt International Nickel expansion;
Off-Shore Petroleum exploration on-going;
Hotel / golf expansions delayed;
Possible Brazilian Investment in Sugar/Ethanol ?
Possible Chinese investments ??

40. TThhee CChhaannggiinngg GGeeoo--EEccoonnoommiicc
EEnnvviirroonnmmeenntt
VVeenneezzuueellaa,,
CChhiinnaa,,
BBrraazziill,, aanndd
UUSSAA

41. TThhee CChhaannggiinngg GGeeoo--EEccoonnoommiicc EEnnvviirroonnmmeenntt
Special Relationship with Venezuela:
Merchandise Exports to Ven. (2010): $1.727 million or 37.7% of Total
Merchandise Imports from Ven. $4,300 million or 40.4& of Total
(ONE, AEC, 2011)
Oil Import Subsidy: (1% interest, 25 year repayment, 40% of imports)
My estimate for 2010 +/- $1,168 million
Cuba’s Service Exports to Venezuela.: up to $ 6,000 million
Cuba’s Total Export of Pharmaceuticals to Ven. in 2010: $164 Million

42. Direct Subsidization in 2010 : $ 1.2 to 2 Billion;
Special Trade Deals
(Doctors, etc. at politically determined prices)
Unclear, perhaps exceeding $ 6 Billion
Sustainability ?
Unsustainable in long run due to their political
character;
Doctor’s services: too valuable to be cut quickly, but
also unsustainable in the long run.

43. Emerging Relationship with China
Second major trading partner in 2010;
Cuba’s Imports: $1,223,5 million
The major source of low-cost manufactures
Cuba’s Exports: $ 677.3 million (nickel mainly)
Possible future investment
Off-Shore Petroleum and refining;
Manufacturing;
Hotels
Prospects: Promising
Ideological affinity;
Nickel and agriculture are of interest to China
Downside: Is China also “de-industrializing” Cuba?

44. RReellaattiioonnsshhiipp wwiitthh BBrraazziill::
Trade: Major expansion of Cuba’s imports from
Brazil to +/- $ 450 million
Brazilian Investment:
Mariel port project: +/- $ 960 million
Sugar/ethanol investment appears probable;
Off-shore petroleum exploration dormant
Some small investment activities;
Some technical assistance
Cuba: a useful medium for Brazilian diplomatic
ambitions in the region

45. Relations with the United States:
Normalization would be positive for Cuba
(and for the United States)
• Tourism bonanza for Cuba
(Curiosity, sun/sea/sand, ”snow-bird”, retiree, convention,
“March-Breaker” tourism would all “break loose”)
• Access to a major new export market;
• Major Investment potential, esp. from Cuban-
American community;
• Major Technological transfers would be promoted
• Promotion of numerous types of financial flows
(informal; NGOs micro-credits; supplier’s credits;
bank loans; portfolio investments, IDB loans etc.) ;
Normalization would help Cuba become a
“normal “ country

46. PPoossssiibbllee FFuuttuurree SScceennaarriiooss::
11.. CCoonnttiinnuuiinngg MMooddeerraattee RReeffoorrmm
22.. PPeettrroo--PPoowweerr PPaarrttyy PPaattrroonnaaggee RReeggiimmee
33.. TThhee ““CChhiinneessee MMooddeell””
44.. MMoovvee ttoo ““NNoorrmmaall”” MMiixxeedd MMaarrkkeett
EEccoonnoommyy

47. 22.. PPeettrroo--PPoowweerr PPaarrttyy PPaattrroonnaaggee RReeggiimmee::
MMooddeerraattee rreeffoorrmmss,, pplluuss aa PPeettrroolleeuumm BBoonnaannzzaa
Assumptions:
– Successful off-shore oil development;
– Three to 8 year Time Horizon
– Political Status Quo: Communist Party
dominance continues;
– Venezuela support may or may not continue
– China orientation continues
– No US-Cuba Normalization

48. Consequences:
Possibility AA.. MMooddeerraattee BBooPP SSuuppppoorrtt;;
– EEnnccoouurraaggiinngg ddiivveerrssiiffiieedd eexxppaannssiioonn
– PPrroommoottiinngg ggrroowwtthh aanndd pprroossppeerriittyy
PPoossssiibbiilliittyy BB.. TThhee ““CCuurrssee ooff RReessoouurrccee WWeeaalltthh””??
– EEccoonnoommyy ddrriivveenn bbaacckk ttoo ““mmoonnoo--eexxppoorrttaattiioonn”” vviiaa
eexxcchhaannggee rraattee iimmppaacctt ((lliikkee SSaauuddii AArraabbiiaa,, VVeenneezzuueellaa
eettcc..))
– RReeccaallll tthhee ssuuggaarr bboonnaannzzaa:: ““DDaannccee ooff tthhee MMiilllliioonnss””
PPoolliittiiccaall IImmpplliiccaattiioonnss iinn eeaacchh ccaassee::
– WWiinndd--ffaallll OOiill RReevveennuueess ffeeeedd tthhee PPaarrttyy PPaattrroonnaaggee
mmaacchhiinnee;; ssttrreennggtthheenn cceennttrraall ppoolliittiiccaall ccoonnttrrooll;;
– AAmmpplliiffiieedd ppootteennttiiaall ffoorr ccoorrrruuppttiioonn oovveerr aanndd aabboovvee tthhee
ppeerrvvaassiivvee PPaarrttyy ppaattrroonnaaggee

49. 3. Possible “Chinese” Model
Assumptions:
– Political Status Quo: Communist Party
monopoly continues
– Major Apertura to Foreign Investment
– More effective domestic “Marketization”
– Effective macro-economic management (re
monetary policy and the exchange rate)
– With or without Chavez support
– Successful Export-Orientation
– Time-Horizon: from Year 2 to Year 15

50. Probable Consequences:
– SSttrreennggtthheenneedd PPaarrttyy CCoonnttrrooll
– NNoo AAuutthheennttiicc DDeemmooccrraattiizzaattiioonn oorr HHuummaann
RRiigghhttss IImmpprroovveemmeennttss
– CCoonnttiinnuuiinngg PPoolliittiiccaall RReepprreessssiioonn,,
– GGrreeaatteerr EEccoonnoommiicc PPrroossppeerriittyy
– IImmpprroovviinngg EEccoonnoommiicc LLiibbeerrttiieess ((ttrraavveell,,
ttoouurriissmm,, ttrraaddee,, eenntteerrpprriissee))

51. 44.. RRaappiidd MMoovvee ttoo ““NNoorrmmaall”” MMiixxeedd MMaarrkkeett
EEccoonnoommyy
Cuba as a “Normal Country”: Characteristics:
o Further Internal Economic Liberalization
o Enhanced Economic Apertura
(re DFI, Trade, Financial Flows, IFIs)
o Productive Relations with Exile Diaspora
o Transition to Political Pluralism and Human
Rights
o Normalization with the United States

52. Main Economic Consequences:
– Accelerated and more complete
technological transfer to all areas of
economy;
– Stimulation of economic growth
– Cuba becomes an economic Gateway
to Latin America from North America;
from Latin America to North America

53. PPrreeccoonnddiittiioonnss::
–EEmmeerrggeennccee ooff RReeffoorrmmiisstt LLeeaaddeerrsshhiipp;;
–SShhiifftt ttoo ggeennuuiinnee ppoolliittiiccaall pplluurraalliissmm
–NNoorrmmaalliizzaattiioonn wwiitthh tthhee UUnniitteedd SSttaatteess
PPrroobbaabbiilliittyy::
– SShhoorrtt rruunn,, 22000099--22001144:: 55%%
– LLoonnggeerr TTeerrmm,, 22002211--22002266:: 7700%%

54. VV.. AAlltteerrnnaattee SScceennaarriiooss::
SScceennaarriioo PPrroobbaabbiilliittyy
22001122--1155 22001155--2200 22002211--2255
11.. GGrraadduuaalliisstt
MMooddeerraattee RReeffoorrmm
6600%% 2255%% 00%%
22.. PPeettrroolleeuumm PPaarrttyy
PPaattrroonnaaggee PPaarraaddiiggmm
1100%% 3300%% 2200%%
33.. CChhiinneessee MMooddeell 1155%% 2255%% 1100%%
44.. ““NNoorrmmaall EEccoonnoommyy””
55%% 2200%% 7700%%
aanndd ““PPoolliittyy”” MMooddeell

55. Optimistic again! (as in 1993)
Raul is pragmatic and deliberative; accepts hard truths
and takes strong actions;
Fidel and the Fidelistas are in permanent eclipse;
Generational change will happen;
Problems are being tackled;
Climate of opinion is reformist;
Heightened popular expectations for change are
increasingly difficult to ignore;
Slightly greater toleration of critical views, despite
“Cyber-wars”, Blogger Battles and short-term arrests;
Entrepreneurship, Ingenuity, and CCrreeaattiivviittyy ooff tthhee
CCuubbaann PPeeooppllee;; ““HHuummaann CCaappiittaall””
– WWiisshhffuull TThhiinnkkiinngg????

56. To Conclude:
Economic situation is difficult;
Policy changes are in the right direction
but reforms so far are timid;
Major uncertainties re Chavez support and
petroleum;
A dynamic towards further gradual reform
is in motion and will continue;

57. Thank You Very Much